[W]hile a push to raise Vermont’s minimum wage likely won’t go anywhere this year, lawmakers and advocates are laying the groundwork now for legislation that would significantly increase the rate in the second half of the biennium.
There are practical reasons for a delay in moving forward. Senate President Pro Tem Tim Ashe told reporters that lawmakers need better information about how an increase would impact the benefits cliff for people who participate in the state’s welfare to work program, known as Reach Up.
And then there is the political reality. Liberal Democrats and Progressives are touting a $15 per hour rate as an anti-poverty measure. And they’d like to sell it to their more conservative counterparts as a boon to the economy. Republicans, on the other hand, see the wage boost as a hit on small businesses. Gov. Phil Scott has said he would oppose an increase in the minimum wage.
Vermont raised the minimum wage to $10 on Jan. 1. The state is tied with Arizona for the fifth-highest minimum wage in the nation. The rate will go up to $10.50 in 2018. After that, the wage will be tied to inflation, based on COLA, or cost of living adjustment increases.
At a press conference on Tuesday with minimum wage increase advocates, Sen. Michael Sirotkin, D-South Burlington, said adjusted for inflation, the minimum wage is below what it was in 1968.
The Joint Fiscal Office, the Legislature’s financial research arm, will release a study next month on the effect of a $15 minimum wage on the state’s economy and what’s known as the “benefits cliff.” The “benefits cliff” occurs when the additional income from wages pushes someone over the eligibility limits and the value of the wage increase is less than the benefits.
Residents who receive food stamps, low-income heating assistance, child care assistance and other subsidies could lose those benefits if a minimum wage increase pushed their income past the upper income limits for those programs.
Thousands of Vermonters could be affected, Sirotkin said.
Ellen Kahler, executive director of the Vermont Sustainable Jobs Fund, said the study is worth the wait.
“The Legislature may look at the benefits cliff and say, ‘OK, let’s do $15,’” Kahler said. “But unless they look at that and really understand it, they can’t know that, and it could have the unintended consequence of harming people more than they’re helping.”
Kahler said the minimum wage is a way to push incomes up for low-wage workers across the board. Too many employers don’t pay a livable wage, she said, and workers have seen earnings stagnate for the past two decades.
The Joint Fiscal Office in February 2017 published its annual “Basic Needs Budgets and the Livable Wage” report, and found that the livable wage in Vermont for the cheapest living arrangements (two adults splitting expenses and with no children) is currently $13.03 per hour.
If companies across the board were required to start paying their employees a living wage, Kahler said, “for some businesses in Vermont, it’ll be challenging.”
These reasons and others justify “a comprehensive approach,” Kahler said.
Isaac Grimm, lead organizer with the liberal advocacy group Rights and Democracy, said raising the minimum wage to $15 an hour by 2022, which is the goal of several of minimum wage bills introduced this year, would immediately increase the wages of tens of thousands of Vermonters.
More than 85,000 Vermonters earn less than $15 an hour, Grimm said.
James Haslam, the executive director for Rights and Democracy, said it is easy to make an economic case for increasing wages.
“It’s hard to imagine a better economic stimulus than boosting the wages of people who are right now going without” ordinary household necessities, Haslam said. The money low-income Vermonters earn goes back into the Vermont economy, he said, and is spent on rent, child care and purchases at local businesses.
“It’s not like they’re going to the Caribbean and spending it there,” Haslam said.
But the effects of an increased minimum wage go beyond a worker’s income, said William Driscoll, vice president at Associated Industries of Vermont, a group representing manufacturing interests in the state.
A higher minimum wage would make entry-level workers more expensive, Driscoll said, and it would also put upward pressure on employees’ wages at higher pay grades.
Neither workers nor employers want a wage structure in which manufacturers can’t afford to raise someone’s wages as their experience and responsibility increases over time, he said. But a high starting salary means that employers must raise wages throughout an organization, or else risk losing the financial incentives that normally come with greater expertise and time on the job.
Because of this, a mandatory minimum wage increase will cost more than simply the added wage required to bring everyone up to $15, he said.
Manufacturers in Vermont stand to be affected in particular by a minimum wage hike, Driscoll said, because they must compete with companies outside the state. That means it’s hard for manufacturers to pass on to consumers increases in the cost of business without losing market share, he said.
A minimum wage increase could actually hurt some low-income workers as well, said Sara Solnick, an economics professor at the University of Vermont, and chair of the university’s Department of Economics.
Depending on the size of the increase, Vermont’s economy will probably shed jobs, Solnick said. On the other hand, those Vermonters with jobs would enjoy higher wages, she said.
A higher minimum wage would prevent employers “from outrageous abuses,” where desperate workers are given extremely low pay for their time, she said. And it could also benefit employers, by bringing more applicants to open positions, by reducing turnover, and allowing employers to be more selective about who they hire.
Still, Solnick said, “I don’t think it’s the best tool for helping low-income people.”
A better tool is the earned income tax credit, she said — “so you’re actually directing [assistance] toward people who you determine qualify for help.”
The earned income tax credit ties higher take-home pay for workers to actual income, Solnick said. As it is, some people making minimum wage are poor, and some are not; the wage increase benefits both groups of people equally, she said.
For that reason, Solnick says, “the minimum wage is kind of a blunt instrument.”
Recent research indicates that relatively high minimum wage laws seem to have worked as hoped in many places — San Francisco, New York and Seattle among them — but not in others. “The key issue,” she said, “is how the minimum wage relates to the prevailing wage landscape.”
Economies in places with a high median wage (such as many large cities) can absorb the effects of a minimum wage increase without much disruption, she said.
“Vermont doesn’t fit that picture,” she said. “I think $15 is pretty high for this economy.”
Some increase in the minimum wage is probably appropriate, Solnick said, but even that isn’t likely to significantly better the lives of many Vermonters. But neither is a minimum wage increase likely to torpedo the economy, she said.
“It doesn’t work miracles, and it doesn’t create economic disaster,” Solnick said.
Five minimum wage bills have been introduced:
